What is developer turnover?
Turnover is simply the process in which control of the community association shifts from the developer to the homeowners. Some homeowners mistakenly believe that “turnover” is the point in time that they receive title to the buildings and the community’s common property and confirm that the developer has met all of its obligations. However, this is not the case—the transfer of property takes place as each home or unit is completed and sold.
Why is developer turnover significant?
Developer turnover is an important milestone for a community, because following a successful turnover the homeowners are in control of their own community and can make all the decisions through their elected Board of Directors.
When does developer turnover occur?
For condominiums turnover begins when the developer has sold fifteen percent (15%) or more of the total units. At this point, the homeowners are entitled to elect one-third (1/3) of the members of the Board of Directors. The homeowners are entitled to elect a majority of the Board of Directors three (3) years after fifty percent (50%) of the units have been sold, or three (3) months after ninety percent (90%) of the units have been sold, whichever occurs first. There are other statutory events that can trigger turnover such as if the developer files for bankruptcy or if a receiver is appointed for the developer, but these instances should be discussed in further detail with your legal counsel.
For homeowners associations (HOAs), the homeowners are entitled to elect a majority of the Board of Directors three (3) months after ninety percent (90%) of the homes have been sold.
Can the developer require an earlier turnover date?
Yes. The developer may identify an early turnover date in the community documents.
For how long will the developer be entitled to elect members to the Board of Directors?
The developer will be entitled to appoint at least one member to the Board of Directors provided the developer holds at least five percent (5%) of the total homes in the community for sale in the ordinary course of the developer’s business.
Must the homeowners accept turnover from the developer?
Yes. When the homeowners are legally permitted to take control, and control is tendered by the developer, the homeowners must accept operational responsibility of the community.
Is the developer obligated to turnover anything other than control of the Board?
Yes. At the time of turnover, the developer must deliver to the new Board of Directors, at the developer’s expense, all property of the association including, but not limited to, association funds, meeting books, the original Declaration and bylaws, plans and specifications, insurance policies, agreements and service contracts, and all warranties. The association’s legal counsel should also ensure that title to all parcels is deeded to the association free and clear of liens. These items must be delivered within ninety (90) days of the date that the homeowners are entitled to take control of the association. The association’s legal counsel can provide a comprehensive checklist of items that must be delivered by the developer.
How do the homeowners confirm at turnover that the association’s finances are in good order?
At the date of turnover every financial record generated by the association since its incorporation are required to be audited by an independent CPA. The accountant determines if expenditures were made for association purposes and whether the developer paid the proper amounts of assessments. Many of our clients also engage their own CPA to review the findings of the developer-engaged CPA.
Following turnover, can the homeowners cancel or break agreements entered into by the developer-controlled Board of Directors?
For condominium associations the answer is yes. With a vote of seventy-five percent (75%) of the membership, a condominium association can cancel original contracts entered into by the developer for the maintenance, management or operation of the condominium property. This is significant because it allows the homeowner-controlled Board of Directors to make their own choices for management, vendors and other services, such as television programming services. Community associations governed by Chapter 720, Florida Statutes, however, do not have the same statutory authority to cancel these long-term agreements.